Morning Report - Yen through 94, Aussie under 1.03

The Aussie is breaking down and fell below 1.03 for the first time in 3 months overnight as investors look to other markets for profitable opportunities in 2013 and the loss of more than 100 points at the low is damaging technically for the Aussie even if it looks a little stretched for the moment. The Yen was also weaker pushing through 94 for the first time since May 2010 when the Euro crisis really kicked off.

Elsewhere our focus is the reversal in the Euro once again and the break lower in the DAX which yesterday we noted had underperformed the rest of Europe. The reason, as we tweeted on Monday afternoon, is that the DAX has broken its uptrend and technically is the weakest of the globes major Equity indices.

So as you can see in the chart above the outlook is for a move toward support which is about 200 points below the current level.

In broader terms it seems that traders and investors were focussed once again on Italian politics in knocking the Euro lower with reuters reporting that,

"Berlusconi is shown to have narrowed his deficit in polls to within the margin of error and his promises of tax hike reversals and rebates of paid tax seem to be having their desired impact," wrote Richard Gilhooly, rate strategist at TD Securities, in emailed comments. "This risk is a negative for the euro," he said.

As trite as this tooing and froing about concerns and no concerns from day to day about the Italian election is we have no doubt that the market is actually reappraising where Europe is and what is going to happen in the months ahead. Traders and investors are a superstitious lot and the fact that the market has had a bit of a swoon around April and May for the past few years will already be on their mind so the Italian election in a few weeks time is just a manifestation of that superstition.

Equally though Berlusconi, if he and or his party get control of the Italian Government he will be a different kettle of fish from the Monti Government.

Looking at the Euro directly as you can see in the chart that the Euro is still in an uptrend and we hold the view that it is likely to head lower but are awaiting the break of our fast moving average to signal a decent retracement.

Draghi's press conference after the ECB meeting tonight and new BoE governor Carney appearance tonight will be important for both the  Euro and the Pound and if Carney looks to take up the OECD's overnight advice for more monetary stimulus in the UK GBP is likely to come under further pressure once again. The target for GBPUSD longer terms is a move below 1.54

In other European markets overnight the FTSE managed a rally of 0.19%, the CAC fell 1.4%, the DAX was 1% lower and the periphery somewhat surprisingly only lost 0.65% in Milan and 0.46% in Madrid.

In the US markets are off a little but not materially with the Dow down 0.07%, the S&P 500 off 0.09% and the Nasdaq was 0.27% lower with 38 minutes to go before the close.

Earnings season is still continuing in the US and this time round is pretty good with Reuters reporting this morning that,

through Wednesday morning, of 301 companies in the S&P 500 that have reported earnings, 68.1 percent have exceeded analysts' expectations, above a 62 percent average since 1994 and 65 percent over the past four quarters. In terms of revenue, 65.8 percent of companies have topped forecasts.

Looking ahead, fourth-quarter earnings for S&P 500 companies are expected to grow 4.7 percent, according to the data, above a 1.9 percent forecast at the start of the earnings season.

Now whether it is because expectations were wound back too far or the economy is really healing is a moot point the reality is that not only are companies beating earnings solidly but also they are beating revenues at a decent clip. So as stretched as this market may feel it does have some underlying support in an expectations sense.

In Asia today we'd expect the Yen to do ok on the back of further acute yen weakness but the Australian market will be influenced by the unemployment report which is out at 11.30 AEDT. The market is looking for a rise of 5k according to FXStreet but as always this is a volatile number and the market reacts as much to the split between fulltime and part time as it does to the headline number sometimes. Overall our view is that unemployment is going to trend higher in coming months.

Turning to commodity markets Gold is up 0.28% at $1677 oz with Silver up 0.5% to $31.67 oz. Breakfast was off with Sugar was under pressure falling 1.78%, coffee dropped 1.25%, OJ was 1.15% lower and Hogs were down 1.42% - not sure what happened to the egg price. Nymex Crude was essentially unchanged.

Data

New Zealand employment and Australian employment are both out. Should the spread between the two contract in favour of NZ that will put more pressure on AUDNZD so both numbers are worth watching. German industrial production and jobless claims in the US are out also but markets will be hanging on Draghi and Carney's addresses.